The federal government provided funding to all states as a result of the CARES Act, which then funded the Coronavirus Relief Fund (“CRF”) to make payments for specified uses to states and local governments.
While I don't have all the details as to how Kansas allocated their funding, the SPARK grant is definitely part of this program.
Under the FAQs under the Kansas Department of Commerce, it does note that the grant is generally taxable. There could be some exceptions for specific individual (meaning grants to individuals) grants, but those provided to a business would be taxable. For some reason I am not able to copy and paste the link to that site.
Congress changed the tax code to make clear that any contribution by a governmental entity to the corporation is taxable. Although the rule only applies to corporations, the IRS would likely treat other businesses (e.g., sole proprietorships, partnerships, LLCs and S corps) similarly.
So bottom line, unless Kansas comes out with an exception for Kansas state tax, the grant will be taxable for both federal and Kansas purposes. This would mean these dollars are no different than any other revenue your business received, meaning that it would be subject to SE tax as well.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
