This has been a slow day under the dome with both chambers starting up at 11:00 am, breaking and then returning at 2:00 pm.
During the “recess,” the House Tax Committee met and passed out a new revenue plan without recommendation.
The new plan, proposed by Rep. Hutton (R-Wichita) and seconded by Rep. Johnson (R-Asaria), contains the following components:
- All state income tax deductions repealed except home mortgage interest, property taxes paid, and charitable contributions (mortgage interest and property tax deductions would be at 50%; charitable contributions at 100%).
- Non-wage business income (currently not subject to income tax) would be taxed at 2.7%.
- Income tax brackets would stay at 2.7% and 4.6% through 2020.
- Statewide sales tax would increase to 6.45% for most products and be reduced to 5.9% for food. The 6.45% rate would revert to 6.15% in 2019.
- Increase the cigarette tax by 46 cents (from $0.79 to $1.25 per pack).
- Instituting the tax amnesty plan.
- Assuming passage of the MCO tax agreement.
This proposal was put into Senate Bill 29 and passed out of committee without a recommendation. Usually committees pass bills “recommended favorably for passage” sending a message to the floor that the committee supports the bill. No recommendation essentially tells others, “use your own judgement.”
Before the proposal was discussed, Chairman Kleeb (R-Overland Park) asked staff to review any problematic timelines with tax increases that could impact how much revenue was generated. Staff informed the committee that under the streamlined sales tax agreement to which Kansas is a party, increases can only be implemented at the start of a fiscal year quarter. That means if it is not implemented by July 1, it could not go into effect until October 1, reducing the potential income. Additionally, Kansas retailers must be given 30 days notice before a rate increase. That is likely impossible for the July 1 deadline. (There is some debate about whether the 30 days starts from passage of the bill or signing by the Governor or publication in the register.)
The last time the sales tax was increased in 2010, the same problem existed. Staff reported however that most, if not all, Kansas retailers went ahead and implemented the new rate immediately.
There could be a problem with a bifurcated sales tax. As an example, supermarkets would need to program their systems to charge 5.9% for food and 6.45% for general merchandise. This might require some time. The state could not force a retailer to charge the new rate until the 30 days have elapsed. Again, the state would hope that retailers will be able and willing to comply quickly.
This bill won’t be ready for debate tomorrow. The Senate is still expected to debate their tax plan.