As a Kansas resident, you're taxed on all your income, no matter where it's earned. So, even though your $50,000 in mineral rights income comes from Kentucky, Kansas still taxes it. To avoid double taxation, Kansas offers a credit for taxes you've paid to other states. In your example, you've paid $2,000 to Kentucky (4% of $50,000). Kansas' tax on that same income would be $2,850 (5.7% of $50,000). After applying the $2,000 credit for the Kentucky tax, you'd owe Kansas the remaining $850. So yes, it looks like Kansas is owed the difference in income taxes. For additional information see Kansas Department of Revenue page 3 & page 7.