Bank Interest in Kansas for non-resident.

Unless there is something peculiar about KS tax law, the general rule is that income derived from intangible assets (stocks, bonds, bank accounts, etc.,) have no "source" state. States generally tax their residents on all income, regardless of source, and tax nonresidents on income with a source within that state (real property, business operations, personal services, etc.).

Some pairs of states have tax agreements that alter this general rule. If KS and MO are such a pair, it should be obvious in the instructions for preparing the state returns.

Ira Smilovitz

"jayhawks71" wrote

Nope.

It is taxable to Missouri though.

Under Kansas law, a nonresident is subject to tax on income from intangibles (such as bank accounts) only to the extent that the intangible is employed in a business, trade or profession in Kansas. Kan. Stat. Ann. §79-32,109(h)(8) . Some states describe this distinction as a "business situs" of the intangible.

Income from a personal bank account, not an asset of a trade or business, generally is considered to have its source at the residence of the owner. You do not have a filing requirement or any source income in Kansas from this account.

Katie in San Diego

To follow up on my post that began this thread, I spoke with Kansas today and they INSIST that the interest earned on a credit union account is "Kansas source" because it "was from Kansas." I even tried to get the supervisor to explain to me what the following, which is in the Kansas tax booklet, means. However, for whatever reason she could not find what I was referring to in spite of giving an exact page number.

"Income received by a nonresident from Kansas sources es NOT include:

Income from annuities, interest, dividends, or gains from the sale or exchange of intangible property (such as bank accounts, stocks or bonds) unless earned by a business, trade, profession or occupation carried on in Kansas."

Any suggestions regarding how to resolve or escalate this issue? The amount of tax due is small, but the more important issue is that I want to know FOR SURE whether I need to file a Kansas return as long as I have a bank account in that state!!! I appreciate the responses thus far. I am hoping that someone could offer a suggestion regarding how to proceed further. Thank you.

Sorry, I have no recollection of the thread.

If you are a nonresident of Kansas for the entire year and don't carry on any business activities in Kansas during that year, interest paid on a personal account is not Kansas source income regardless of where the institution paying it is located.

Since this sounds prospective, IOW, Kansas isn't claiming you owe them something from an unfiled return, just don't file a Kansas return and be done with it.

What is the issue that has to be resolved? Why is any amount of tax due? Why do you have to "proceed further"? In your original post (on Feb. 7) you only asked whether you have to file in Kansas, and whether you would owe Kansas tax. Several experts here told you that the answer to both questions is no. That should be the end of the matter. As Phil Marti said, "just don't file a Kansas return and be done with it."

Is there something else going on? Did the Kansas Department of Revenue contact you for some reason? Why were you even talking to them?

If speaking "with Kansas" is anything like calling the IRS on the phone, there is no assurance that the person you talk to knows what she is talking about. In this case, it seems that she didn't. What the paragraph that you quoted from the instructions means, of course, is that if you are a nonresident of Kansas, the interest from your credit union account in Kansas is not Kansas source income to you. That's exactly what the experts in this group told you.

That doesn't give me a lot of confidence in her abilities. I found it without being given the page number (page 24, left column, a little more than halfway down). The page numbering in the PDF does not match the numbers printed on the pages. Maybe that's the problem.

Bob Sandler

What the paragraph that you quoted from the

Oh, I almost wonder and hesitate. Does it change the matter since it's a credit union rather than a bank and he's an "owner" in the amount of his cu shares? Could it be that this might be construed as a Kansas Business income rather than interest?? It seems pretty out there to me but.....

is that if you are a

No, It's income from an intangible asset (the CU account) and has its source at the residence of the owner. Not taxable by Kansas. Doesn't matter whether it is called interest or a dividend; the result is the same.

Katie in San Diego