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Kansas in spring 2019: the state that un-broke its own tax code

A $165 Articles of Organization filing, a $50 annual report, and a pass-through income tax that came back from the dead in 2017

The Editors
Staff, Incorporator.org
10 min read Updated
Contents 6 sections
  1. The mechanics
  2. The annual report is cheap but easy to miss
  3. The Brownback experiment, and what it means for your 2019 tax bill
  4. Where Kansas actually makes sense
  5. The practical Kansas checklist
  6. Sources

ansas LLC formation costs $165 in paper filings and $160 online at the Secretary of State, with a $50 annual report that keeps the entity in good standing. Those numbers are straightforward. The context around them is not, because Kansas spent most of this decade running a national-scale experiment in exempting pass-through income from state tax, watched the experiment collapse, and in 2017 overrode the Governor's veto to reinstate a tax regime that now hits Kansas LLC members at 3.1 to 5.7 percent again.

If you formed a Kansas LLC between 2013 and 2016, you lived inside the old regime. If you are forming in 2019, you do not.

The mechanics

A Kansas LLC is chartered under the Kansas Revised Limited Liability Company Act, codified at K.S.A. Chapter 17, Article 76, and specifically cited at K.S.A. 17-7662 as "the Kansas revised limited liability company act." The formation document is called Articles of Organization, filed with the Kansas Secretary of State in Topeka. The form (DL for online, PDL for paper) asks for the name of the LLC, its registered office and registered agent (both must be in Kansas), a mailing address, the effective date (immediate or up to 90 days forward), and a signature by an organizer.

The filing fee is $165 by mail or over the counter, and $160 if you file through the Secretary of State's online Business Center. The $5 differential is not a convenience charge; it is the state's deliberate encouragement toward electronic filing, and the online system posts the entity the same business day in most cases. Paper filings take several business days to reach the active index, longer if the examiner finds a defect.

Kansas does not require that the Articles recite a purpose beyond "any lawful business." It does not require that members or managers be named in the formation document. It does not require publication notice, the way New York does, and it does not require a second county-level filing, the way Alabama does. It is a one-window state, and the window moves fast.

You may reserve a name in advance for $30 by filing a Temporary Reservation of Business Entity Name, good for 120 days. Most filers skip this, because Kansas name conflicts are rare outside common trade names and the Business Entity Search at sos.ks.gov returns results in a second. Check the name, file the Articles, move on.

After formation you will need an EIN from the IRS (Form SS-4, online, free, ten minutes), an operating agreement (Kansas does not require one to be filed, but K.S.A. 17-7672 recognizes it as governing member rights and obligations), and a decision on federal tax classification. The default for a single-member Kansas LLC is disregarded-entity treatment; for a multi-member LLC, partnership treatment. You may elect S-corp or C-corp treatment through IRS Form 2553 or Form 8832 respectively.

The annual report is cheap but easy to miss

Every Kansas LLC files an annual report with the Secretary of State under K.S.A. 17-76,139. The fee is $50 online or $55 by paper, and the report is due on the 15th day of the fourth month after the close of the LLC's tax year. For the overwhelming majority of LLCs, which use a calendar year, that date is April 15, the same day as the federal income-tax deadline.

The report itself is short. It lists the registered agent and office, the LLC's mailing address, the names and addresses of members or managers depending on the management structure, and the nature of the business. Kansas does not collect financial information on the report, and the Secretary of State does not use it as a tax-collection device. It is purely an information filing.

What trips filers is the consequence of non-filing. Under K.S.A. 17-76,139, a Kansas LLC that fails to file an annual report by 90 days after the due date is subject to forfeiture. The Secretary of State does not send multiple reminders. The entity goes on the forfeited list, loses its right to do business under the LLC name, and must be reinstated through a separate filing with a $35 reinstatement fee plus payment of all delinquent annual reports. Forfeiture also exposes the members to personal liability for obligations the LLC incurs during the lapsed period, which is the real cost, not the $35.

Kansas does, as of 2019, still require the report annually; the biennial structure that applies to some other states is not yet in force here. Calendar the April 15 filing and pay the $50 online. It takes less time than the average lunch order.

The Brownback experiment, and what it means for your 2019 tax bill

The defining fact about Kansas LLC taxation this decade is that for four years, Kansas LLC members paid zero state income tax on their share of LLC income. That policy was enacted as part of the 2012 tax-reform package championed by Governor Sam Brownback, which eliminated state income tax on pass-through income from partnerships, S-corps, sole proprietorships, and (crucially) LLCs treated as partnerships or disregarded entities. The stated theory was that exempting pass-through income would spur small-business formation and job creation.

What happened instead is well documented. The Kansas Legislative Research Department's own reports, and subsequent analysis by the Tax Foundation and the Center on Budget and Policy Priorities, found that the exemption produced a roughly tripling of LLC formations for tax-planning reasons rather than genuine entrepreneurship. Professionals reclassified salaried income as pass-through income where the law allowed. Revenue collapsed by hundreds of millions of dollars relative to baseline. By 2016 the state was missing payments to its pension system and raiding its highway fund to patch operating deficits.

In 2017 the Legislature passed Senate Bill 30 to reinstate the pass-through tax and raise income tax rates generally. Governor Brownback vetoed. On June 6, 2017, both chambers overrode the veto by more than two-thirds margins. SB 30 became law, and the exemption ended for tax years beginning on or after January 1, 2017.

For a Kansas LLC forming in 2019, the operating regime is the post-SB 30 one. Individual income tax, set at K.S.A. 79-32,110, runs on three brackets: 3.1 percent on the first $15,000 of taxable income for single filers (or $30,000 for joint), 5.25 percent on the slice from $15,000 to $30,000 (or $30,000 to $60,000 joint), and 5.7 percent on income above those thresholds. For a single-member Kansas LLC disregarded to its owner, the LLC's net income flows to the owner's Kansas Form K-40 and is taxed at these rates.

Corporate income tax, at K.S.A. 79-32,110(c), is graduated: 4 percent on the first $50,000 of Kansas taxable income, and 7 percent (4 percent normal plus a 3 percent surtax) on income above $50,000. A Kansas LLC that has elected C-corp treatment for federal purposes generally pays Kansas corporate tax at the entity level and its members pay Kansas individual tax on distributions, with the usual federal double-tax layered on top.

The pass-through election is nearly always correct for a small Kansas LLC in 2019, because the entity-level 7 percent top corporate rate stacked on top of member-level 5.7 percent produces a higher combined effective rate than flowing through once at 5.7 percent, even before federal layers. The exception is narrow: an LLC that plans to retain earnings at the entity level, reinvest aggressively, and take no distributions for years may come out ahead as a C-corp under post-TCJA federal 21 percent treatment. That is a small minority of actual Kansas filings.

What has not changed post-SB 30 is the Section 199A federal pass-through deduction, which flows for federal purposes to Kansas LLC members at up to 20 percent of qualified business income. Kansas conforms to federal AGI as the starting point for individual tax, so the 199A deduction does not reduce Kansas taxable income directly, though it does reduce the federal bill that Kansas filers compute first. The 199A walkthrough is the same in Kansas as in most other states; for a mechanical tour, see our Section 199A explainer.

Where Kansas actually makes sense

Kansas is a high-filing-fee, low-maintenance state. The $165 Articles fee is among the higher initial charges in the country, roughly double Wyoming's $100 and almost double Delaware's $90. The $50 annual report, by contrast, is cheap, and the state does not impose a franchise tax, a capital-stock tax, or a minimum entity tax of the kind California uses to generate $800 per LLC per year. For an LLC that will exist for five years, Kansas costs roughly $415 in state fees ($165 plus five $50 reports); California costs $4,085 over the same period for the same activity.

The state is built for Kansas-operating businesses, and that is the honest answer to "should I form here." Kansas has no Chancery Court reputation, no low-tax gimmick, no asset-protection marketing. Its LLC Act is substantially the 2000 Kansas revision modeled on Delaware's, with amendments through 2019 that track the ULLCA and Delaware drift. It is a competent, modern statute; it is not a branding tool.

Within that frame, Kansas works for three specific profiles.

The first is a Kansas-resident consultant, contractor, or small professional practice. Form in Kansas, stay in Kansas, pay the 5.7 percent top individual rate on whatever crosses $60,000 joint, and use the operating agreement to document member expectations. The all-in first-year cost is under $250 (filing plus a basic registered-agent subscription, which Kansas filers routinely provide themselves if they have a physical Kansas address). For a single-member LLC running a $120,000 consulting practice, Kansas is entirely adequate.

The second is a Kansas agricultural or real estate holding vehicle. Kansas real property benefits from a straightforward title and filing regime, and K.S.A. 17-76,143 authorizes series LLCs for filers who want to segregate asset pools without multiple entity filings. Series filings add a small supplemental fee but remain cheaper than parallel separate LLCs.

The third is a Kansas professional entity that cannot or will not organize under Chapter 17, Article 76 of another state. Licensed Kansas professionals (physicians, attorneys, architects, engineers) use the professional LLC variant authorized by K.S.A. 17-2707 and following, which requires licensing-board approval of the formation document and restricts membership to licensed practitioners in the same profession. The PLLC pays the same $165 fee and the same annual report, with the added board-review step.

Two patterns that do not fit Kansas: venture-financed technology startups that will need to convert to Delaware before any institutional round, and out-of-state founders looking for asset-protection or tax-optimization play. A Kansas LLC for a non-Kansas business produces the worst of both worlds, domestic Kansas filings plus foreign qualification in the operating state, with no offsetting benefit. If that is the fact pattern, form where you operate or form in Delaware and foreign-qualify.

The practical Kansas checklist

Search the name at sos.ks.gov. File the Articles of Organization online for $160, or by paper for $165 if you prefer a physical receipt. Print the filed Articles and staple them to the front of the operating agreement. Apply for the EIN at irs.gov. Set a calendar reminder for April 15 of next year and every year after, labeled "Kansas LLC annual report, $50 online." Pay the Kansas individual income tax on the LLC's flow-through income when you file Form K-40 next April, remembering that the 2012 pass-through exemption is gone and is not coming back in any form currently visible in the Legislature.

The most common Kansas LLC failure mode in 2019 is not the filing itself. It is the tax transition: owners who formed during the exemption window, who got used to paying no Kansas income tax on LLC earnings, and who did not notice or did not believe that SB 30 applied to them until the Department of Revenue sent a notice. That notice arrived for plenty of Kansas filers during the 2018 tax season; it will arrive for the rest during 2019. The transition is complete, the rates are real, and Kansas LLC members pay them now.

Sources

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