A recent report by the Kansas Division of Legislative Post Audit found it was impossible to determine how many tax credits Kansas businesses earned or used as part of the Kansas Department of Revenue’s “High Performance Incentive Program (HPIP).” The audit is another in a long series of findings that the Kansas state government does a poor job of tracking taxpayer handouts.
HPIP, which was established in 1993, is designed to incentivize businesses to make capital improvements, pay higher-than-average wages, and provide training to their employees. In exchange, companies may earn state tax credits that reduce their state income, privilege, or premium tax liabilities dollar-for-dollar. Businesses can also receive sales tax exemptions for specific projects. The audit focused only on state tax credit awards, as sales tax credits awarded under the program were outside the scope of the audit.
What LPA found was a mass of unreliable data that prevented them from determining just what the actual dollar amounts were.
“We reviewed three HPIP datasets from KDOR as part of this audit,” the report reads. “The datasets showed the amount of HPIP tax credits businesses earned and used each tax year. KDOR provided two of the datasets during this audit and one of the datasets during a previous economic development incentive evaluation audit. We compared all three datasets for the same years to determine if the data was reliable.”
Short answer? The data was not reliable.
According to auditors, not only were all three datasets provided by KDOR inconsistent with each other, but the amounts of tax credits businesses earned and used differed by tens to hundreds of millions of dollars within a single year.
For example, in just tax year 2019:
- One dataset showed 313 filers earned about $900 million of credits and used about $90 million. KDOR officials said this dataset included both investment and training credits.
- Another dataset showed 483 filers earned about $230 million in credits and used about $110 million. KDOR officials told us this dataset included only the investment tax credit. It didn’t include the training tax credit.
- A third dataset showed 333 filers earned about $160 million in HPIP credit and used about $100 million. KDOR officials said this dataset included both investment and training credits.
“Because the datasets were inconsistent, we can’t say how much HPIP credit businesses earned and used in any particular year or over time,” auditors said. “KDOR officials told us they were confident the most recent dataset they provided was reasonably close to the actual amounts earned and used. However, they said they were continuing to review the HPIP data. This could result in additional changes. Therefore, we couldn’t verify the accuracy of the data within the 100-hour limit of this limited-scope audit. It would take a full audit to adequately review KDOR’s HPIP data for accuracy.”
Moreover, auditors said, because KDOR is responsible for the administration of the program, there was an expectation that the department would have complete and accurate data with which to monitor HPIP.
KDOR officials told LPA the data inconsistencies were caused by issues in their processes for tracking HPIP credits businesses have carried forward because of the complexity of the HPIP program guidelines.
KDOR blamed data entry errors and that their “ATP” tax processing system was double-counting some credits some businesses earned and subsequently passed through to their owners or shareholders.
Auditors recommended KDOR continue correcting its HPIP data to ensure its accuracy by reviewing HPIP-certified businesses’ tax returns and ensuring data from the returns is captured in ATP, and that KDOR should report the corrected HPIP data to the Legislature.
“As part of correcting its data, KDOR should evaluate whether the ATP system is capable of processing HPIP data,” auditors wrote. “If it’s not, KDOR should consider working with the Legislature to identify ways to upgrade or replace ATP.”
KDOR mostly agreed with the recommendations, noting that it had “dedicated a staff member to review each HPIP-certified entity to ensure all information is current, accurate, and complete,” to complete this review by the beginning of 2026.
KDOR also agreed that updates to the ATP system are needed, but “any corrective measures must be carried out within an extremely narrow window, so as not to disrupt the processing of tax returns during the regular and extended filing seasons. As a result, there is limited flexibility to undertake such a significant system update, given the demands of other legislative priorities.”