Earlier this month, HB 2208 was introduced in the Kansas House of Representatives and referred to the Committee on Taxation. Known as the Endow Kansas Tax Credit Act, HB 2208 would create a new 70% tax credit for qualifying contributions to qualifying endowment funds at qualifying community foundations.
This post provides an overview of how the new tax credit would work under the bill as introduced. In future posts, I’ll criticize the bill’s text and examine the policy considerations raised by the bill. A final—likely much later—post will compare the Endow Kansas Tax Credit Act with similar laws in other states.
Overview
The bill, embedded below in PDF format, is sensibly structured as follows:
- Section 1(a) states the short title of the act.
- Section 1(b) contains the text creating the new credit.
- Section 1(c) imposes limits on the credit.
- Section 1(d) describes the procedures by which a community foundation becomes certified to participate in the program and a taxpayer applies for the credit.
- Section 1(e) authorizes the Department of Revenue to adopt regulations under the act.
- Section 1(f) contains definitions for key terms.
- Section 2 states when the act becomes effective.
The key operative provision is found in section 1(b)(1):
For all taxable years commencing after December 31, 2025, a credit shall be allowed against the income or privilege tax liability imposed upon a taxpayer pursuant to the Kansas income tax act or the privilege tax imposed upon any national banking association, state bank, trust company or savings and loan association pursuant to article 11 of chapter 79 of the Kansas Statutes Annotated, and amendments thereto, in an amount equal to 70% of the amount of an endowment gift by a taxpayer during the taxable year to an unrestricted permanent endowment fund or field of interest permanent endowment fund held by a qualified community foundation.
This section tells us who can claim the credit, the amount of the credit, and what gifts qualify.
- Who can claim the credit? The credit is available to taxpayers who pay either the state income or privilege tax.
- What is the credit amount? Taxpayers are entitled to a credit equal to 70% of the amount of a qualifying gift.
- What gifts qualify? To be a qualifying gift, a gift must be an “endowment gift” made to an “unrestricted permanent endowment fund” or a “field of interest permanent endowment fund” held by a “qualified community foundation.”
Note that, although “field of interest endowment fund,” “permanent endowment fund,” and “unrestricted endowment fund” are all defined later in the bill, the terms “unrestricted permanent endowment fund” and “field of interest permanent endowment fund” are not. I’ll return to this problem in the next post.
Limitations
The bill imposes restrictions on the size of gifts that qualify and the amount of credits that can be awarded in a single year.
Minimum gift
The credit is only available for qualifying gifts of at least $500.
Maximum credit amounts
The act would impose three levels of annual limitations on credits: a statewide limit, a per-community-foundation limit, and a per-taxpayer limit.
State maximum
The total aggregate amount of credits is limited to $3,000,000 for 2026, $4,000,000 for 2027, and $5,000,000 for 2028 and subsequent years.
Qualified Community Foundation maximum
Credits for qualifying gifts to each Qualified Community Foundation (excluding affiliates) and each affiliate of a Qualified Community Foundation are limited to 10% of the state maximum each year.
Taxpayer maximums
Each taxpayer is limited each year to a credit of:
- $100,000 for an individual or fiduciary taxpayer;
- $200,000 for married taxpayers filing a joint return; and
- $200,000 for corporations or financial institutions.
In addition, the credit would be nonrefundable: if the credit completely eliminates a taxpayer’s liability for a year, the taxpayer wouldn’t get the balance back as a refund. However, the taxpayer could carry it forward for up to five additional years. In other words, any leftover credit amount could be applied to a future year’s tax liability.
Procedures
The bill describes two procedures that the Department of Revenue would implement: certifying Qualified Community Foundations and allocating credits to taxpayers for qualifying gifts.
Certifying Qualified Community Foundations
Community foundations would have to apply with the Department of Revenue for certification as Qualified Community Foundations. The Department would issue a written certificate to each Qualified Community Foundation and maintain a public list of all Qualified Community Foundations.
Section 1(f)(5), paraphrased below, contains the definition of “Qualified Community Foundation.” It establishes the requirements that community foundations would have to meet to participate in the Endow Kansas program.
Allocating credits to taxpayers
Before filing their taxes, taxpayers would apply for a credit based on their qualifying gift, certifying the amount of the gift and the name of the Qualified Community Foundation they gave to (or planned to give to). The Department of Revenue would have 30 days to allocate a credit amount based on the gift or notify the taxpayer that no credit (or only a partial credit) is available.
Taxpayers would then have no more than 30 days after the date of allocation to make their qualifying gift (if they hadn’t made it before applying).
Key definitions
In section 1(f), HB 2208 defines some phrases, including some used elsewhere in the bill:
Endowment Gift
An irrevocable contribution to an endowed fund held by a Qualified Community Foundation.
Field of Interest Endowment Fund
An endowed fund held by a community foundation that is used for a specific charitable purpose, such as education, health or other areas of community need or geographic location such as a city or county.
This term is not used elsewhere in the bill.
Permanent Endowment Fund
A fund held by a Qualified Community Foundation, the principal of which is permanently restricted and the growth is used to provide charitable assistance exclusively to support nonprofit organizations and programs that benefit residents of the state of Kansas and is intended to exist in perpetuity.
Qualified Community Foundation
A nonprofit organization that meets all of the following requirements:
- It is organized under Kansas law to serve the state of Kansas, or one or more Kansas counties or municipalities, or a combination thereof;
- It is exempt from federal income taxation under section 501(c)(3) of the federal internal revenue code;
- It supports broad-based charitable interests that benefit the residents of a defined geographic area not larger than the state of Kansas; and
- It meets one of the following two additional requirements:
- It is, or is affiliated with a community foundation that is, accredited with Community Foundation National Standards administered by the Community Foundations National Standards Board; or
- It is recognized by the Kansas Department of Revenue as satisfying all of the following alternative criteria:
- It comprises permanent, component funds established by multiple separate donors;
- It is directed by a board of directors comprising community representatives, and such board is not subject to the control of another entity;
- It actively engages in charitable activities, including, but not limited to, supporting two or more unaffiliated tax exempt organizations through grants or other professionally accepted means of charitable support and serving in leadership roles on important community issues;
- It has an annual audit, or a financial review when its assets total less than $5,000,000, performed by an independent public accountant; and
- It complies with the guidelines of the Kansas Association of Community Foundations, or its successor entity, for membership by a community foundation.
A Qualified Community Foundation includes “its affiliate funds benefitting a defined geographic area not larger than the state of Kansas that are legally a part of, and subject to, the policies and operations of the” Qualified Community Foundation.
Unrestricted Endowment Fund
An endowed fund held by a community foundation that allows the community foundation to determine how grant dollars will be used.
This term is not used elsewhere in the bill.
Summary
HB 2208 would establish a new 70% tax credit for qualifying gifts to qualifying funds at qualifying community foundations. The state would lose no more than $5 million (plus administrative costs) per year in tax revenue if it adopts the program. Each taxpayer would be limited to no more than a $200,000 credit, and gifts to each participating community foundation could only account for 10% of all credits given in a year.
My next post on this topic will address several problems with the bill’s text—one of which should be obvious from this post. Then, I’ll review some policy concerns raised by the bill as introduced. Finally, I’ll compare the Endow Kansas program with similar programs in other states.